Yellen, French Elections and Geopolitics Impacting Markets

April 10, 2017

Fed Chair Janet Yellen speaks later today at an event at the University of Michigan. St. Louis Fed District President Bullard is the latest Fed official to suggest that the Fed may end reinvestment of maturing bonds in its portfolio later this year and thus begin the slow process of reducing the size of its balance sheet. Investors look to Yellen to perhaps further clarify that matter and others pertaining to monetary and regulatory policy.

Latest French opinion polls reveal a tightening contest for president among the four contenders. The first round of the vote is 13 days away. Unless someone gets over 50% there will be a second round in May between the two top performers in round one.

The U.S. is saber-rattling in two ways. Secretary of State Tillerson meets with his Russian counterpart to complain face-to-face about that country’s stance in Syria. A U.S. aircraft carrier’s course has been directed toward North Asia to persuade North Korea to stand down on its nuclear weapons development. The South Korean won is 0.7% lower. The South Korean Kospi stock index fell 0.9%, and the 10-year South Korean sovereign debt yield rose six basis points in response.

The dollar is unchanged against the euro, Swiss franc and Chinese yuan. The dollar fell 0.5% against the Canadian currency and 0.3% each versus sterling and the kiwi. The greenback edged up 0.1% relative to the yen, peso and Aussie dollar.

Stocks in the Pacific Rim are mixed, with gains of 0.9% in Australia and 0.7% in Japan but drops of 0.5% in China, 0.4% in India, 0.3% in Hong Kong and the aforementioned slippage in South Korea. European equity markets are down most everywhere, but U.S. stocks opened up a bit.

West Texas Intermediate crude oil climbed 0.9% to $52.71 per barrel. In contrast, industrial metals like copper are lower, and so is gold.

Today’s most startling data release comes from Canadian housing starts, which shot up to 253.7K in March from 214.3K in February and a 40-year average of 184.4K. The level in March was athe highest since September 2007.

Several Japanese economic statistics were reported.

The economy watchers index fell 1.2 points to a reading of 47.4 in March, which is at a 5-month low, and the companion economy watchers outlook data series dropped to a 7-month low.

There were 5.36% more bankruptcies in March than a year earlier following on-year declines of 10.4% in January and 4.8% in February.

Net stock and bond transactions in the final month of fiscal 2016 generated a 2.36 trillion capital outflow.

The current account surplus swelled to JPY 2.81 trillion in February from JPY 2.38 trillion a year earlier. The seasonally adjusted surplus of JPY 2.21 trillion in February was considerably bigger than January’s surplus of JPY 1.26 trillion.

The Sentix gauge of investor confidence in the euro area improved by a further 3.2 points to 23.9 in April. Such had printed at 5.7 a year earlier and is at its best levels since before the world financial crisis.

The Bank of France’s French business sentiment index settled back 1 point to 103 in March but was above the 100 level for a fifth straight time.

Italian industrial production growth in February of 1.0% from January and 1.9% from a year earlier beat analyst expectations. Finnish industrial output in February was 0.1% softer than a year earlier.

In the year to March, consumer prices rose 1.7% in Greece, 1.0% in Denmark, 2.4% in Norway, and 2.6% in the Czech Republic.

Ireland’s construction purchasing managers index climbed 2.9 points in March to a 5-month high of 60.8.

Australian home loans fell 0.5% in February, reversing a similar-sized rise the month before.

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